Page 246 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

• E-value proposition: Merchants such as local agro-dealers could sell more merchandise, track amounts
owed, send automated repayment requests, generate interest income, and access bank credit through
proof of receivables. Consumers could buy more, track amounts owed, and access bank credit through
a credit history.
• Examples: Store credit is very important. In the Mozambique, Tanzania, and Pakistan diaries, 22 per cent,
60 per cent and 94 per cent of the households respectively used store credit. It is unclear how much, if
any, is conducted electronically. Under existing functionality, only repayments would be appropriate for
eMoney but tracking store credit disbursement is technically feasible.
• Digital liquidity impact: eMoney for store credit could improve digital liquidity if the borrower can time
their eMoney repayments to match their eMoney income.
• Other issues: Store credit highlights the need to think about an end-to-end solution, not just the payment
piece. Unlike a cash payment, store credit is a two-step process: Obtaining the credit during a shopping
trip; and repaying at a later date. A robust solution needs to create value throughout the entire lifecycle:
Simple user experience during the purchase; ability of merchant to assess credit worthiness; ability to
monitor balances owed; option to send reminder notices; and ease of repayment.
Savings-based line of credit

• Concept: Mobile money users store excess money in an interest-bearing eMoney account. Those deemed
creditworthy can also access a line of credit (LoC), with a maximum loan amount greater than the interest-
bearing account balance. The LoC could be used to buy agriculture supplies and possibly even be limited
to purchases from agro-dealers.

• E-value proposition: This arrangement provides users with a real-time LoC. Although users must
temporarily tie-up money in an interest-bearing account, they are able to borrow a greater amount
giving them ‘net leverage.’
• Example: In 2012, Safaricom partnered with Commercial Bank of Africa (CBA) to launch M-Shwari, a micro
savings and loan product linked to M-Pesa in Kenya. Registered M-Pesa users can establish an account
online and then transfer money between M-Pesa and M-Shwari accounts. Balances within M-Shwari earn
two to six per cent interest, depending on balance and willingness to lock up funds. Some users can also
access a short-term LoC. There is no formal interest rate, but there is a 7.5 per cent facilitation fee for
a loan that is due in 30 days. A consumer that wants to extend the term another 30 days has to pay an
additional 7.5 per cent fee. LoC eligibility requires submission of a national ID. CBA’s credit decision uses
Safaricom data, such as age of account, airtime patterns, and repayment of short-term airtime credits.
Low-income borrowers have been less successful at obtaining loans because risk is twice that of the
general population. With help from FSD Kenya, CBA tailored their risk models to identify a credit worthy
low-income segment. 11
• Digital liquidity impact: The BoP needs frequent, quick access to short-term credit in general and to
avoid cash-in and cash-out requirements. A savings-based LoC provides this type of solution. However,
this solution requires an ability to save money to build lender trust. That may be too difficult for the BoP.
• Other issues: This is a complicated product requiring financial and mobile literacy. Registration also
involves agreeing to terms and conditions, and acknowledging data privacy conditions. M-Shwari handles
these agreements via the web. This may be difficult to achieve in a purely mobile environment.

11 Cook, Tamara, and Claudia McKay. 2015. How M-Shwari Works: The Story So Far. Forum 10. Washington, D.C.: CGAP and FSD
Kenya. License: Creative Commons Attribution CC BY 3.0.

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